A guarantor loan is a type of unsecured loan requiring a second party to guarantee the repayments. This is in place should the original applicant defa
A guarantor loan is a type of unsecured loan requiring a second party to guarantee the repayments. This is in place should the original applicant default. Typically this loan is for those who have bad credit histories or even those with no previous credit history. Tenant guarantor loans are perfect for those who fall into these categories and may have been turned down by a bank. So, how can guarantor loans help tenants?
Poor Credit Score
Even if the tenant has a poor credit score, guarantor loans give tenants a chance to have someone to act as their guarantor for their application. Therefore, the nominated guarantor will co-sign the agreement as the tenants’ backup should they struggle with a payment or miss one. If this happens, the guarantor will cover the payment instead of the tenant.
However, the chosen guarantor must not have a poor credit score, as the guarantor loans have been created in order to help someone that is in a poor credit situation. Therefore, it’s imperative that your guarantor has a good credit rating in order to be eligible. During the application process, lenders will need to see the affordability of a guarantor, as the lender doesn’t want to put the guarantor or the tenant in a worse position by giving them the funding. Therefore, every lender will perform credit checks and affordability assessments. These will be in line with the FCA guidelines and will be conducted before any loan is given.
Who Can Be A Guarantor?
In order to apply for a guarantor loan, the guarantor must be right and tick all the boxes. Therefore, consider the following when choosing your guarantor;
- A close relative, co-worker or a friend.
- The chosen guarantor must be in current full-time employment.
- The guarantor cannot be a spouse and you cannot share a joint account with them.
- They will need to have a good credit history.
- The guarantor that you choose must be over the age of 21. In some cases, lenders may consider a minimum age of 18, but it cannot be someone over the age of 75 years old.
Please note that even if your guarantor meets all the requirements, it doesn’t mean that your loan will be guaranteed.
Improve Your Credit Score
A huge advantage of choosing the right guarantor is that if you have a poor credit score and approved for the loan, this will help to improve your credit rating in the long term. This is providing that you meet the repayments on time. When you pay the guarantor loan back it shows responsibility and you can be trusted to safely borrow credit. For self-employed applicants, a small guarantor loan is an ideal way to improve your credit score.
As you can see, guarantor loans can be really beneficial for tenants and help them in a number of ways. All the tenant needs to do to ensure a process that is as seamless as possible is find a guarantor that ticks all the boxes and the tenant will see their credit score build.